April futures were confined to a narrow range Friday but managed to eke out a modest gain. The massive earthquake in Japan found its way into crude oil and natural gas trading, and the unwinding of long crude oil and short natural gas positions prompted a firm tone to the market.
At the closing bell April futures had added 5.9 cents to $3.889 and May rose 5.3 cents to $3.945. April crude oil sank $1.54 to $101.16/bbl as petroleum markets scrambled to factor in a sudden loss of Japanese refining capacity.
“This market appeared to scoop up some support as the funds were likely covering some shorts while liquidating long petroleum positions,” said Jim Ritterbusch of Ritterbusch and Associates in a note to clients. April futures posted a high of $3.947 early in the session, but that proved to be formidable resistance and prices settled near the low end of the day’s range. Ritterbusch said that although “Thursday’s highs were nicked out by a slight margin, today’s [Friday’s] trade represented further price consolidation that will likely be followed by some fresh lows [this] week.”
Oilfield services giant Baker Hughes released figures on the number of rigs drilling for gas, and supply bulls got some encouragement in the form of a double-digit rig count drop. For the week ended March 11 rigs drilling for gas declined by 17 to 882, below the year-ago level of 927. Other drilling figures were positive. Total U.S. rigs increased by eight to 1,715, well above the 1,407 of a year ago, and horizontal rigs, those common to the active shale plays, added 11 to 981, towering above the 702 horizontal rig count of a year ago.
Ritterbusch is expecting a weak Monday “since any revisions within the weekend temperature views are apt to be ignored given the approach of spring. However, we will need to see some fresh lows early next week if our downside targets to the $3.50-3.60 area are to remain viable.”
Analysts suggested that Thursday’s surprisingly low storage report may have done some damage to the bullish case as well. “This week’s EIA underground storage report sucked the air from the buyers’ sails,” said Peter Beutel, president of Cameron Hanover, in a report to clients. “For the last few weeks, funds have been selling natural gas futures in the belief that the warming temperatures of spring would not be enough to eat up the heavy output coming from shale gas production. And this latest report seems to verify their worries.”
Beutel, however, sees some market response to a firming economy. “At the same time, though, there should be some positive influence in the market from the economic recovery, when it arrives. The thing that has been so confounding about this market is that there has been no sign of increased industrial demand for gas, despite economic data suggesting that the economy has been growing. That demand should show up eventually, and it could turn out to help stabilize prices.”
The latest economic data may be just what the bulls need. In addition to the dynamics of storage, weather and production, natural gas traders got a look at a strengthening of the underlying economy with the release of February retail sales figures from the Commerce Department. The February figure came in right on target as analysts had been expecting a stout gain of 1.0%, well above January’s 0.3% gain. Higher gasoline prices are thought to have contributed to the gain, but looking ahead, sales should get some lift from ongoing higher gasoline prices and a jump in new motor vehicle sales, which surged by 6.4% in February. Severe winter weather, however, in parts of the U.S. may have diminished other components. Year-on-year retail sales stand more than 7% higher.
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